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Murl Plastics Inc. purchased a new machine one year ago at a cost of $42,000. Although the machine operates well, the president of Murl Plastics
Murl Plastics Inc. purchased a new machine one year ago at a cost of $42,000. Although the machine operates well, the president of Murl Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine would slash annual operating costs by two-thirds, as shown in the comparative data below: $42.000 $63,000 Purchase cost new 5 years Estimated useful life new $29,400 9,800 Annual operating costs Annual straight-line ation 7,000 12,600 Remaining book value 35,000 Salvage value now 7,000 Salvage value in five years In trying to decide whether to purchase the new machine, the president has prepared the following Book value of the old machine $35,000 Less: Salvage value 7,000 $28,000 Net loss from disposal "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We have to use the old machine for at least a few more years. Sales are expected to be $147,000 per year, and selling and administrative expenses are expected to be $88,200 per year, regardless of which machine is used
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